RISK FACTORS
Our future operating results could differ materially from the results described in this report due to the risks and uncertainties related
to our business, including those discussed below. Furthermore, these factors represent risks and uncertainties that could cause actual results to differ materially from those implied by forward-looking statements. Accordingly, in evaluating our
business, we encourage you to consider the following discussion of risk factors, in its entirety, in addition to other information contained in this Quarterly Report on Form
10-Q
and our other public filings
with the SEC.
In the following discussion of risk factors, references to Mirna refer to the business of Mirna
Therapeutics, Inc. as it existed prior to the Merger on August 28, 2017 and references to Private Synlogic refer to the business of Synlogic, Inc. prior to the Merger on August 28, 2017. References to we,
us, our and similar terms refer to the combined business of Synlogic, Inc. after the Merger on August 28, 2017.
Risks
Related to Our Financial Condition, Capital Requirements and Operating Results
We are a clinical-stage biopharmaceutical company with a history
of losses, and we expect to continue to incur losses for the foreseeable future, and we may never achieve or maintain profitability.
We are a clinical-stage biopharmaceutical company focused on the development of Synthetic Biotics and we have incurred significant operating
losses since our inception in 2014. Our net loss was approximately $21.0 million and $8.5 million for the fiscal years ended December 31, 2016 and 2015, respectively, and approximately $28.7 million for the nine months ended
September 30, 2017. As of September 30, 2017, we had an accumulated deficit of approximately $60.0 million. To date, we have not generated any product revenue. Substantially all of our losses have resulted from expenses incurred in
connection with our research and development programs and from general and administrative costs associated with our operations. We have no products on the market and have initiated clinical development for only one product candidate, SYNB1020, and
expect that it will be many years, if ever, before we have a product candidate ready for commercialization.
We have not generated, and do
not expect to generate, any product revenue for the foreseeable future, and we expect to continue to incur significant operating losses for the foreseeable future due to the cost of research and development, preclinical studies and clinical trials,
the regulatory review process for product candidates, and the development of manufacturing and marketing capabilities for any product candidates approved for commercial sale. The amount of our potential future losses is uncertain. To achieve
profitability, we must successfully develop product candidates, obtain regulatory approvals to market and commercialize product candidates, manufacture any approved product candidates on commercially reasonable terms, establish a sales and marketing
organization or suitable third-party alternatives for any approved product candidates and raise sufficient funds to finance our business activities. We may never succeed in these activities and, even if we do, may never generate revenues that are
significant or large enough to achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would decrease our value
and could impair our ability to raise capital, maintain our research and development efforts, expand our business or continue our operations. A decline in our value could also cause our stockholders to lose all or part of their investment.
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We will require substantial additional funding, which may not be available on acceptable terms, or at all.
We have used substantial funds to discover and develop our programs and proprietary drug development platform and will require
substantial additional funds to conduct further research and development, including preclinical studies and clinical trials of our product candidates, seek regulatory approvals for our product candidates and manufacture and market any products that
are approved for commercial sale. We expect that the capital resources available to us as of September 30, 2017 will be sufficient to meet our anticipated cash requirements for at least the next 12 months. Our future capital requirements
and the period for which we expect our existing resources to support our operations may vary significantly from what we expect. Our monthly spending levels vary based on new and ongoing research and development and corporate activities. Because we
cannot be certain of the length of time or activities associated with successful development and commercialization of our product candidates, we are unable to estimate the actual funds we will require to develop and commercialize them.
We do not expect to realize any appreciable revenue from product sales or royalties in the foreseeable future, if at all. Our revenue sources
will remain very limited unless and until our product candidates complete clinical development and are approved for commercialization and successfully marketed. To date, we have primarily financed our operations through sales of our securities, our
third-party collaborations and our merger with Mirna. We intend to seek additional funding in the future through collaborations, equity or debt financings, credit or loan facilities or a combination of one or more of these financing sources. Our
ability to raise additional funds will depend on financial, economic and other factors, many of which are beyond our control. Additional funds may not be available to us on acceptable terms or at all. If we raise additional funds by issuing equity
or convertible debt securities, our stockholders will suffer dilution and the terms of any financing may adversely affect the rights of our stockholders. In addition, as a condition to providing additional funds to us, future investors may demand,
and may be granted, rights superior to those of existing stockholders. Debt financing, if available, may involve restrictive covenants limiting our flexibility in conducting future business activities, and, in the event of insolvency, debt holders
would be repaid before holders of equity securities received any distribution of corporate assets.
If we are unable to obtain funding on
a timely basis or on acceptable terms, or at all, we may have to delay, limit or terminate our research and development programs and preclinical studies or clinical trials, if any, limit strategic opportunities or undergo reductions in our workforce
or other corporate restructuring activities. We also could be required to seek funds through arrangements with collaborators or others that may require us to relinquish rights to some of our product candidates or technologies that we would otherwise
pursue on our own.
Our quarterly and annual operating results may fluctuate in the future. As a result, we may fail to meet the expectations of
research analysts or investors, which could cause our stock price to decline.
Our financial condition and operating results may fluctuate from
quarter to quarter and year to year in the future due to a variety of factors, many of which are beyond our control. Factors relating to our business that may contribute to these fluctuations include the following factors, as well as factors
described elsewhere in this Quarterly Report on Form
10-Q
and others:
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our ability to achieve or maintain profitability;
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our ability to develop and maintain Synthetic Biotic technologies;
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our ability to manage our growth;
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the outcomes of research programs, clinical trials, or other product development and approval processes;
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our ability to accurately report our financial results in a timely manner;
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our dependence on, and the need to attract and retain, key management and other personnel;
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our ability to obtain, protect and enforce our intellectual property rights;
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our ability to prevent the theft or misappropriation of our intellectual property,
know-how
or technologies;
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potential advantages that our competitors and potential competitors may have in securing funding or developing competing technologies or products; and
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our ability to obtain additional capital that may be necessary to expand our business.
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Due to the various
factors mentioned above, and others, the results of any prior quarterly or annual periods should not be relied upon as indications of our future operating performance.
Our stock price is volatile and our stockholders may not be able to resell shares of our common stock at or above the price they paid.
The trading price of our common stock is highly volatile and could be subject to wide fluctuations in response to various factors, some of
which are beyond our control, such as reports by industry analysts, investor perceptions or negative announcements by other companies involving similar technologies or diseases. These factors also include those discussed in this Risk
Factors section of this Quarterly Report on Form
10-Q
and others such as:
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announcements relating to collaborations that we may enter into with respect to the development or commercialization of our product candidates;
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announcements relating to the receipt, modification or termination of government contracts or grants;
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termination or delay of a development program;
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product liability claims related to our clinical trials or product candidates;
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prevailing economic conditions;
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additions or departures of key personnel;
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business disruptions caused by earthquakes or other natural disasters;
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disputes concerning our intellectual property or other proprietary rights;
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FDA or other U.S. or foreign regulatory actions affecting us or our industry;
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sales of our common stock by the company, our executive officers and directors or our Stockholders in the future;
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future sales or issuances of equity or debt securities by us;
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lack of an active, liquid and orderly market in our common stock;
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fluctuations in our quarterly operating results; and
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the issuance of new or changed securities analysts reports or recommendations regarding us.
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addition, the stock markets in general, and the markets for pharmaceutical, biopharmaceutical and biotechnology stocks in particular, have experienced extreme volatility that have been often unrelated to the operating performance of the issuer.
These broad market fluctuations may adversely affect the trading price or liquidity of our common stock. In the past, when the market price of a stock has been volatile, holders of that stock have sometimes instituted securities class action
litigation against the issuer. If any of our stockholders were to bring such a lawsuit against us, we could incur substantial costs defending the lawsuit and the attention of our management would be diverted from the operation of our business.
Our short operating history may make it difficult for stockholders to evaluate the success of our business to date and to assess our future viability.
We are a clinical-stage biopharmaceutical company with a limited operating history. We commenced active operations in 2014. Our
operations to date have been limited to organizing and staffing our company, research and development activities, business planning and raising capital. In June 2017, we initiated a Phase 1 clinical trial with SYNB1020, however all of our other
therapeutic programs are still in the preclinical development stage. We will need to transition from a company with a research focus to a company capable of supporting clinical development and commercial activities. In addition, we expect to
complete preclinical studies and to initiate a Phase 1 clinical trial of SYNB1618 in the first half of 2018. We have not yet demonstrated our ability to successfully complete large-scale, pivotal clinical trials, obtain marketing approvals,
manufacture a commercial-scale product, or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful product commercialization. Typically, it takes many years to develop one new product
candidate from the time it is discovered to the time that it becomes available for treating patients. We may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors that may hinder our success in
commercializing one or more of our product candidates. Further, drug development is a capital-intensive and highly speculative undertaking that involves a substantial degree of risk. You should consider our prospects in light of the costs,
uncertainties, delays and difficulties frequently encountered by companies in the early stages of development and clinical trials. Any forward-looking statements regarding our future prospects, plans or viability may not be as accurate as they may
be if we had a longer operating history or a history of successfully developing and commercializing pharmaceutical products.
Risks Related to the
Development of Our Product Candidates
Clinical trials are costly, time consuming and inherently risky, and we may fail to demonstrate safety and
efficacy to the satisfaction of applicable regulatory authorities.
Clinical development of a product candidate is expensive, time
consuming and involves significant risk. We cannot guarantee that any clinical trials we undertake to conduct will be conducted as planned or completed on schedule or at all. A failure of one or more clinical trials can occur at any stage of
development. Events that may prevent successful or timely completion of clinical development of our product candidates include but are not limited to:
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inability to generate satisfactory preclinical or other
non-clinical
trials, including, toxicology, or other in vivo or in vitro data or diagnostics to support the initiation or
continuation of clinical trials;
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delays in reaching agreement on acceptable terms with CROs and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and clinical trial sites;
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delays in obtaining required institutional review board approval at each clinical trial site;
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failure to permit the conduct of a clinical trial by regulatory authorities, after review of an investigational new drug or equivalent foreign application or amendment;
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delays in recruiting qualified patients in our clinical trials;
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failure by clinical sites or CROs or other third parties to adhere to clinical trial requirements;
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failure by us, clinical sites, CROs or other third parties to perform in accordance with the good clinical practices requirements of the FDA or applicable foreign regulatory guidelines;
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patients dropping out of the clinical trials;
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occurrence of adverse events, unacceptable side effects or toxicity issues associated with our product candidates;
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imposition by the FDA of a clinical hold or the requirement by other similar regulatory agencies that one or more clinical trials be delayed or halted;
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changes in regulatory requirements and guidance that require amending or submitting new clinical protocols or performing additional nonclinical studies;
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the ultimate affordability of the cost of clinical trials of our product candidates;
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negative or inconclusive results from our clinical trials that may result in us deciding, or regulators requiring us, to conduct additional clinical trials or abandon such clinical trials and/or clinical trials or
development programs in other ongoing or planned indications for a product candidate; and
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delays in reaching agreement on acceptable terms with third-party manufacturers or delays or failure in manufacturing sufficient quantities of our product candidates for use in clinical trials.
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Any inability to successfully complete clinical development and obtain regulatory approval for our product candidates could result in
additional costs to us or impair our ability to generate revenue. In addition, if we make manufacturing or formulation changes to our product candidates, we may need to conduct additional preclinical studies or the results obtained from such new
formulation may not be consistent with previous results obtained. Clinical trial delays could also shorten any anticipated periods of patent exclusivity for our product candidates and may allow competitors to develop and bring products to market
before we do, which could impair our ability to successfully commercialize our product candidates and may harm our business and results of operations.
The approach we are taking to discover and develop novel therapeutics using synthetic biology to create novel medicines is unproven and may never lead
to marketable products.
The scientific discoveries that form the basis for our efforts to generate and develop our product
candidates are relatively recent. The scientific evidence to support the feasibility of developing drugs based on our approach is both preliminary and limited. Synthetic Biotics represent a novel therapeutic modality and their successful development
by us may require additional studies and efforts to optimize their therapeutic potential. Any product candidates that we develop may not demonstrate in patients the therapeutic properties ascribed to them in laboratory and other preclinical studies,
and they may interact with human biological systems in unforeseen, ineffective or even harmful ways. If we are not able to successfully develop and commercialize product candidates based upon this technological approach, we may never become
profitable and the value of our capital stock may decline.
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Our Synthetic Biotic product candidates are based on a relatively novel technology, which makes it
difficult to predict the time and cost of development and of subsequently obtaining regulatory approval, if at all.
We have
concentrated our research and development efforts to date on a limited number of product candidates based on our Synthetic Biotic therapeutic platform and identifying our initial targeted disease indications. Our future success depends on our
successful development of viable product candidates. There can be no assurance that we will not experience problems or delays in developing our product candidates and that such problems or delays will not cause unanticipated costs, or that any such
development problems can be solved.
The clinical trial and manufacturing requirements of the FDA, the European Medicines Agency and other
regulatory authorities, and the criteria these regulators use to determine the safety and efficacy of a product candidate, vary substantially according to the type, complexity, novelty and intended use and market of the product candidate. The
regulatory approval process for novel product candidates such as Synthetic Biotic therapeutics can be more expensive and take longer than for other, better known or more extensively studied therapeutic modalities. It is difficult to determine how
long it will take or how much it will cost to obtain regulatory approvals for our product candidates in either the United States or the European Union or how long it will take to commercialize our product candidates, even if approved for marketing.
Approvals by the European Medicines Agency or national regulatory agencies may not be indicative of what the FDA, and vice versa, may require for approval and different or additional preclinical studies or clinical trials may be required to support
regulatory approval in each respective jurisdiction. In addition, the FDA has advised us that the clinical development of SYNB1020 does not require submission to the National Institutes of Healths (NIH) Recombinant DNA Advisory
Committee (RAC), a committee that reviews human gene transfer protocols. Nevertheless, if RAC review is deemed necessary by one or more of our clinical trial sites that receives NIH funding, our clinical trials could be delayed. Our
product candidates do not involve gene transfers to humans, and we believe that they do not meet any of the criteria for that that type of review. Delay or failure to obtain, or unexpected costs in obtaining, the regulatory approval necessary to
bring a potential product candidate to market could decrease our ability to generate sufficient product revenue, and our business, financial condition, results of operations and prospects may be harmed.
We may not be successful in our efforts to use and expand our development platform to build a pipeline of product candidates.
A key element of our strategy is to use our targeted focus and experienced management and scientific team to create Synthetic Biotic medicines
that can be deployed against a broad range of human disease in order to build a pipeline of product candidates. Although our research and development efforts to date have resulted in potential product candidates, we may not be able to continue to
identify and develop additional product candidates. Even if we are successful in continuing to build our pipeline, the potential product candidates that we identify may not be suitable for clinical development. For example, these potential product
candidates may be shown to have harmful side effects or other characteristics that indicate that they are unlikely to be drugs that will receive marketing approval and achieve market acceptance. If we do not successfully develop and commercialize
product candidates based upon our approach, we will not be able to obtain product revenue in future periods, which likely would result in significant harm to our financial position. There is no assurance that we will be successful in our preclinical
and clinical development, and the process of obtaining regulatory approvals will, in any event, require the expenditure of substantial time and financial resources.
Our product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit the
commercial viability of an approved label, or result in significant negative consequences following marketing approval, if any.
Undesirable side effects caused by our product candidates could cause us or regulatory authorities to interrupt, delay or terminate our
clinical trials or result in a restrictive label or delay regulatory approval by the FDA or comparable foreign authorities. Undesirable side effects and negative results for other indications may negatively impact the development and potential for
approval of our product candidates for their proposed indications.
Additionally, even if one or more of our product candidates receives
marketing approval, and we or others later identify undesirable side effects caused by such products, potentially significant negative consequences could result, including but not limited to:
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regulatory authorities may withdraw approvals of such products;
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regulatory authorities may require additional warnings on the labels of such products;
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we may be required to create a risk evaluation and mitigation strategy (REMS) plan, which could include a medication guide outlining the risks of such side effects for distribution to patients, a
communication plan for healthcare providers, and/or other elements to assure safe use;
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we could be sued and held liable for harm caused to patients; and
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our reputation may suffer.
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Any of these events could prevent us from achieving or maintaining
market acceptance of a product candidate, even if approved, and could significantly harm our business, results of operations, and prospects.
Our
product development program may not uncover all possible adverse events that patients who take our product candidates may experience. The number of subjects exposed to our product candidates during clinical trials and the average exposure time in
the clinical development program may be inadequate to detect rare adverse events, or chance findings, that may only be detected once the product is administered to more patients and for greater periods of time.
Clinical trials by their nature utilize a sample of the potential patient population. However, with a limited number of patients and limited
duration of exposure, we cannot be fully assured that uncommon or severe side effects of our product candidates will be uncovered. Such side effects may only be uncovered with a significantly larger number of patients exposed to the drug. If such
safety problems occur or are identified after a product candidate reaches the market, the FDA may require that we amend the labeling of the product or recall the product, or may even withdraw approval for the product. Any of these events could
prevent us from achieving or maintaining market acceptance of a product candidate, even if approved, and could significantly harm our business, results of operations, and prospects.
We are heavily dependent on the success of our product candidates. Some of our product candidates have produced results in preclinical settings to date,
but none of our product candidates have completed all required clinical trials, and we cannot give any assurance that we will generate data for any of our product candidates sufficient to receive regulatory approval in our planned indications, which
will be required before they can be commercialized.
We have invested substantially all of our efforts and financial resources to
identify, acquire and develop our portfolio of product candidates. Our future success is dependent on our ability to successfully further develop, obtain regulatory approval for, and commercialize one or more product candidates. We currently
generate no revenue from sales of any products, and we may never be able to develop or commercialize a product candidate.
In addition,
only our lead product candidate has advanced into clinical trials, and none of our product candidates has advanced into any pivotal clinical trial, for our proposed indications and it may be years before any additional clinical trials, including any
pivotal clinical trial, are initiated and completed, if at all. We are not permitted to market or promote any of our product candidates before we receive regulatory approval from the FDA or comparable foreign regulatory authorities, and we may never
receive such regulatory approval for any of our product candidates. We cannot be certain that any of our product candidates will be successful in clinical trials or receive regulatory approval. Further, our product candidates may not receive
regulatory approval even if they are successful in clinical trials. If we do not receive regulatory approvals for our product candidates, we may not be able to continue our operations.
If we fail to obtain or maintain orphan drug exclusivity for some of our products, our competitors may obtain approval to sell competing drugs to treat
the same conditions and our revenues will be reduced.
As part of our business strategy, we have developed and may in the future
develop product candidates that may be eligible for FDA and European Commission orphan drug designation. In August 2016, the FDA granted orphan drug designation to SYNB1020 for the treatment of UCD and in October 2017, the FDA granted orphan drug
designation to SYNB1618 for the treatment of PKU. Under the Orphan Drug Act, the FDA may designate a product as an orphan drug if it is intended to treat, diagnose or prevent rare diseases or conditions that affect fewer than 200,000 people in the
United States. In the EU, orphan drug designation may be granted to drugs intended to treat, diagnose or prevent a life-threatening or chronically debilitating disease having a prevalence of no more than five in 10,000 people in the EU. The company
that first obtains FDA approval for a designated orphan drug for the associated rare disease receives marketing exclusivity for use of that drug for the stated condition for a period of seven years. Orphan drug exclusive marketing rights may be lost
under several circumstances, including a later determination by the FDA that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the drug. Similar regulations are available in the EU
with a
ten-year
period of market exclusivity.
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Because the extent and scope of patent protection for some of our product candidates is limited,
obtaining orphan drug designation is especially important for any product candidates that may be eligible for orphan drug designation. For eligible products, we plan to rely on the exclusivity period under the Orphan Drug Act to maintain a
competitive position. If we do not obtain orphan drug designation for our product candidates that do not have broad patent protection, our competitors may then seek to sell a competing drug to treat the same condition and our revenues, if any, may
be adversely affected thereby.
Even though we have obtained orphan drug designation for certain of our product candidates, and intend to
seek orphan drug designation for other product candidates, there is no assurance that we will be the first to obtain marketing approval for any particular rare indication. Further, even though we have obtained orphan drug designation for certain of
our product candidates, or even if we obtain orphan drug designation for other potential product candidates, such designation may not effectively protect us from competition because different drugs can be approved for the same condition and the same
drug can be approved for different conditions and potentially used
off-label
in the orphan indication. Even after an orphan drug is approved, the FDA can subsequently approve a competing drug for the same
condition for several reasons, including, if the FDA concludes that the later drug is safer or more effective or makes a major contribution to patient care. Orphan drug designation neither shortens the development time or regulatory review time of a
drug, nor gives the drug any advantage in the regulatory review or approval process.
Product development involves a lengthy and expensive process
with an uncertain outcome, and results of earlier preclinical studies and clinical trials may not be predictive of future clinical trial results.
The results from preclinical studies or early clinical trials of a product candidate may not predict the results that will be obtained in
subsequent subjects or in later stage clinical trials of that product candidate or any other product candidate. Flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced. We have limited experience in
designing clinical trials and we may be unable to design and execute clinical trials to support regulatory approval of our product candidates. In addition, preclinical study and clinical trial data are often susceptible to varying interpretations
and analyses. Product candidates that seemingly perform satisfactorily in preclinical studies and clinical trials may nonetheless fail to obtain regulatory approval. There is a high failure rate for drugs proceeding through clinical trials. A number
of companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in clinical development even after achieving promising results in earlier studies, and any such setbacks in our clinical development could negatively
affect our business and operating results.
If we experience delays or difficulties in the enrollment of patients in clinical trials, our receipt of
necessary regulatory approvals could be delayed or prevented.
Clinical trials of a new product candidate require the enrollment of
a sufficient number of patients suffering from the disease or condition the product candidate is intended to treat and who meet other eligibility criteria. Rates of patient enrollment are affected by many factors, including the size of the potential
patient population, the age and condition of the patients, the stage and severity of disease or condition, the nature and requirements of the protocol, the proximity of patients to clinical sites, the availability of effective treatments for the
relevant disease or condition, the perceived risks, benefits and convenience of administration of the product candidate being studied, the patient referral practices of physicians, our efforts to facilitate timely enrollment in clinical trials, and
the eligibility criteria for the clinical trial. Delays or difficulties in patient enrollment or difficulties retaining trial participants, including as a result of the availability of existing or other investigational treatments, can result in
increased costs, longer development times or termination of a clinical trial.
In addition, our success may depend, in part, on our
ability to identify patients who qualify for our clinical trials, or are likely to benefit from any product candidate that it may develop, which will require those potential patients to undergo a screening assay for the presence or absence of a
particular genetic sequence or clinical trait. Genetically defined diseases generally, and especially those for which our current product candidates are targeted, may have relatively low prevalence. For example, we estimate there are approximately
2,000 patients diagnosed with UCD in the United States, and approximately 16,500 patients that may be diagnosed with PKU in the United States. If we, or any third parties that we engage to assist us, are unable to successfully identify patients with
these diseases, or experience delays in doing so, then we may not realize the full commercial potential of any product candidate we develop.
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We may face potential product liability claims, and, if successful claims are brought against us, we may
incur substantial liability and costs. If the use or misuse of our product candidates harms patients, or is perceived to harm patients even when such harm is unrelated to our product candidates, our regulatory approvals, if any, could be revoked or
otherwise negatively impacted and we could be subject to costly and damaging product liability claims. If we are unable to obtain adequate insurance or are required to pay for liabilities resulting from a claim excluded from, or beyond the limits
of, our insurance coverage, such liability could adversely affect our financial condition.
The use or misuse of our product
candidates in clinical trials and the sale of any products for which we may obtain marketing approval exposes us to the risk of potential product liability claims. Product liability claims might be brought against us by consumers, healthcare
providers, pharmaceutical companies or others selling or otherwise coming into contact with our product candidates and approved products, if any. There is a risk that our product candidates may induce adverse events. If we cannot successfully defend
against product liability claims, we could incur substantial liability and costs. Patients with the diseases targeted by our product candidates may already be in severe and advanced stages of disease and have both known and unknown significant
preexisting and potentially life-threatening health risks. During the course of treatment, patients may suffer adverse events, including death, for reasons that may be related to our product candidates. Such events could subject us to costly
litigation, require us to pay substantial amounts of money to injured patients, delay, negatively impact or end our opportunity to receive or maintain regulatory approval to market our products, or require us to suspend or abandon our
commercialization efforts. Even in a circumstance in which an adverse event is unrelated to our product candidates, the investigation into the circumstance may be time-consuming or inconclusive. These investigations may delay our regulatory approval
process or impact and limit the type of regulatory approvals our product candidates receive or maintain. As a result of these factors, a product liability claim, even if successfully defended, could have a material adverse effect on our business,
financial condition or results of operations.
Although we have product liability insurance, which covers any clinical trial we may
conduct in the United States, our insurance may be insufficient to reimburse us for any expenses or losses we may suffer. We will also likely be required to increase our product liability insurance coverage for the advanced clinical trials that we
plan to initiate. If we obtain marketing approval for any of our product candidates, we will need to expand our insurance coverage to include the sale of commercial products. There is no way to know if we will be able to continue to obtain product
liability coverage and obtain expanded coverage we may require, in sufficient amounts to protect us against losses due to liability, on acceptable terms, or at all. We may not have sufficient resources to pay for any liabilities resulting from a
claim excluded from, or beyond the limits of, our insurance coverage. Where we have provided indemnities in favor of third parties under our agreements with them, there is also a risk that these third parties could incur liability and bring a claim
under such indemnities. An individual may bring a product liability claim against us alleging that one of our product candidates or products causes, or is claimed to have caused, an injury or is found to be unsuitable for consumer use. Any such
product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability, and a breach of warranties. Claims could also be asserted under
state consumer protection acts. Any product liability claim brought against us, with or without merit, could result in:
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withdrawal of clinical trial volunteers, investigators, patients or trial sites or limitations on approved indications;
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the inability to commercialize, or if commercialized, decreased demand for, our product candidates;
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if commercialized, product recalls, withdrawals of labeling, marketing or promotional restrictions or the need for product modification;
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initiation of investigations by regulators;
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substantial costs of litigation, including monetary awards to patients or other claimants;
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liabilities that substantially exceed our product liability insurance, which we would then be required to pay ourselves;
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an increase in our product liability insurance rates or the inability to maintain insurance coverage in the future on acceptable terms, if at all;
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the diversion of managements attention from our business; and
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damage to our reputation and the reputation of our products and our technology.
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Product liability claims may subject us to the foregoing and other risks, which could have a material adverse
effect on our business, financial condition or results of operations.
Risks Related to Regulatory Approval of Our Product Candidates and Other Legal
Compliance Matters
We may seek breakthrough therapy designation for one or more of our product candidates, but we might not receive such
designation, and even if we do, such designation may not lead to a faster development or regulatory review or approval process, and it does not increase the likelihood that our product candidates will receive marketing approval.
We may seek a breakthrough therapy designation from the FDA for some of our product candidates. A breakthrough therapy is defined as a drug or
biological product that is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition, and for which preliminary clinical evidence indicates that the drug or biological product may
demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. For drugs or biological products that have been designated as
breakthrough therapies, interaction and communication between the FDA and the sponsor of the trial can help to identify the most efficient path for clinical development while minimizing the number of patients placed in ineffective control regimens.
Drugs designated as breakthrough therapies by the FDA could also be eligible for accelerated approval.
Designation as a breakthrough
therapy is within the discretion of the FDA. Accordingly, even if we believe one of our product candidates meets the criteria for designation as a breakthrough therapy, the FDA may disagree and instead determine not to make such designation. In any
event, the receipt of a breakthrough therapy designation for a product candidate may not result in a faster development process, review or approval compared to drugs considered for approval under conventional FDA procedures and does not assure
ultimate approval by the FDA. In addition, even if one or more of our product candidates qualify and are designated as breakthrough therapies, the FDA may later decide that the drugs or biological products no longer meet the conditions for
designation and the designation may be rescinded.
We may seek Fast Track designation for one or more of our product candidates, but we might not
receive such designation, and even if we do, such designation may not actually lead to a faster development or regulatory review or approval process.
If a product candidate is intended for the treatment of a serious condition and nonclinical or clinical data demonstrate the potential to
address unmet medical need for the condition, a product sponsor may apply for FDA Fast Track designation. We were awarded Fast Track designation for SYNB1020 in June 2017. Fast Track designation does not ensure that we will receive marketing
approval for the product candidate or that approval will be granted within any particular timeframe. We may not experience a faster development or regulatory review or approval process with Fast Track designation compared to conventional FDA
procedures. In addition, the FDA may withdraw Fast Track designation if it believes that the designation is no longer supported by data from our clinical development program. Fast Track designation alone does not guarantee qualification for the
FDAs priority review procedures.
Even if we obtain regulatory approval for a product candidate, we will remain subject to ongoing regulatory
requirements.
If any of our product candidates are approved for marketing, we will be subject to ongoing regulatory requirements,
including with respect to manufacturing, labeling, packaging, storage, advertising, promotion, sampling, record-keeping, conduct of post-marketing clinical trials, and submission of safety, efficacy and other post-approval information, including
both federal and state requirements in the United States and requirements of comparable foreign regulatory authorities.
Manufacturers and
manufacturers facilities are required to continuously comply with FDA and comparable foreign regulatory authority requirements, including ensuring that quality control and manufacturing procedures conform to current Good Manufacturing
Practices (cGMP) regulations and corresponding foreign regulatory manufacturing requirements. As such, we and our contract manufacturers will be subject to continual review and inspections to assess compliance with cGMP and adherence to
commitments made in any Biologic License Application (BLA) or marketing authorization application.
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Any regulatory approvals that we receive for our product candidates may be subject to limitations
on the approved indicated uses for which the product candidate may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials, and surveillance to monitor
the safety and efficacy of the product candidate. We will be required to report adverse reactions and production problems, if any, to the FDA and comparable foreign regulatory authorities. Any new legislation addressing drug safety issues could
result in delays in product development or commercialization, or increased costs to assure compliance. If our original marketing approval for a product candidate was obtained through an accelerated approval pathway, we could be required to conduct a
successful post-marketing clinical trial in order to confirm the clinical benefit for our products. An unsuccessful post-marketing clinical trial or failure to complete such a trial could result in the withdrawal of marketing approval.
If a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or
problems with the facility where the product is manufactured, or disagrees with the promotion, marketing or labeling of a product, the regulatory agency may impose restrictions on that product or us, including requiring withdrawal of the product
from the market. If we fail to comply with applicable regulatory requirements, a regulatory agency or enforcement authority may, among other things:
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impose civil or criminal penalties;
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suspend or withdraw regulatory approval;
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suspend any of our ongoing clinical trials;
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refuse to approve pending applications or supplements to approved applications submitted by us;
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impose restrictions on our operations, including closing our contract manufacturers facilities; or
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require a product recall.
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Any government investigation of alleged violations of law would be
expected to require us to expend significant time and resources in response and could generate adverse publicity. Any failure to comply with ongoing regulatory requirements may significantly and adversely affect our ability to develop and
commercialize our products and our value and operating results would be adversely affected.
Healthcare legislative reform measures may have a
material adverse effect on our, financial condition or results of operations.
In the United States, there have been and continue
to be a number of legislative initiatives to contain healthcare costs. For example, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (collectively, the ACA),
was passed, which was intended to substantially change the way health care is financed by both governmental health programs and private insurers, and significantly impact the U.S. pharmaceutical industry. The ACA, among other things, introduced a
new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted, or injected, increases the minimum Medicaid rebates owed by manufacturers under
the Medicaid Drug Rebate Program and extends the rebate program to individuals enrolled in Medicaid managed care organizations, establishes annual fees and taxes on manufacturers of specified branded prescription drugs, and promotes a new Medicare
Part D coverage gap discount program.
In January 2017, Congress voted to adopt a budget resolution for fiscal year 2017 that authorizes
the implementation of legislation that would repeal portions of the ACA. Although such budget resolution is not a law, it is widely viewed as the first step toward the passage of legislation that would repeal certain aspects of the ACA. Further, on
January 20, 2017, President Trump signed an Executive Order directing federal agencies with authorities and responsibilities under the ACA to waive, defer, grant exemptions from, or delay the implementation of any provision of the ACA that
would impose a fiscal or regulatory burden on states, individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. Congress also could consider subsequent legislation to replace elements of the
Affordable Care Act that are repealed. With the new Presidential administration and Congress, there will likely be additional administrative or legislative changes, including modification, repeal, or replacement of all, or certain provisions of, the
Affordable Care Act. However, it remains to be seen whether new legislation modifying the Affordable Care Act is enacted and, if so, precisely what the new legislation will provide, when it will be enacted and what impact it will have on the
availability of healthcare and containing or lowering the cost of healthcare. The implications of a potential repeal and/or replacement of the Affordable Care Act, for our and our partners business and financial condition, if any, are not yet
clear.
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It is anticipated that the ACA, as well as other healthcare reform measures that may be adopted
in the future, may result in more rigorous coverage criteria and an additional downward pressure on the reimbursement our customers may receive for our products. Further, there have been judicial and Congressional challenges to certain aspects of
the ACA, and it is expected there will be additional challenges and amendments to the ACA in the future, especially with the recent change in administration. Any reduction in reimbursement from Medicare and other government programs may result in a
similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability or commercialize our products.
We may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, false claims laws, and health information privacy and
security laws. If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties.
If we
obtain FDA approval for any of our product candidates and begin commercializing those products in the United States, our operations may be subject to various federal and state fraud and abuse laws, including, without limitation, the federal
Anti-Kickback Statute, the federal False Claims Act, and physician sunshine laws and regulations. These laws may impact, among other things, our proposed sales, marketing, and education programs. In addition, we may be subject to patient privacy
regulation by both the federal government and the states in which we conduct our business. The laws that may affect our ability to operate include:
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the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, to induce, or in return for,
the purchase or recommendation of an item or service reimbursable under a federal healthcare program, such as the Medicare and Medicaid programs;
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federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from
Medicare, Medicaid, or other third-party payors that are false or fraudulent;
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the federal Health Insurance Portability and Accountability Act of 1996 (HIPAA), which created new federal criminal statutes that prohibit executing a scheme to defraud any healthcare benefit program and
making false statements relating to healthcare matters;
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HIPAA, as amended by the Health Information Technology and Clinical Health Act, and its implementing regulations, which imposes specified requirements relating to the privacy, security, and transmission of individually
identifiable health information;
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the federal physician sunshine requirements under the ACA require manufacturers of drugs, devices, biologics, and medical supplies to report annually to the U.S. Department of Health and Human Services information
related to payments and other transfers of value to physicians, other healthcare providers, and teaching hospitals, and ownership and investment interests held by physicians and other healthcare providers and their immediate family members and
applicable group purchasing organizations; and
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state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws that may apply to items or services reimbursed by any third-party payor, including governmental and private payors, to
comply with the pharmaceutical industrys voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, or otherwise restrict payments that may be made to healthcare providers and other potential
referral sources; state laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures, and state laws governing the privacy and
security of health information in specified circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.
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Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of
our business activities could be subject to challenge under one or more of such laws. In addition, recent health care reform legislation has strengthened these laws. For example, the ACA, among other things, amends the intent requirement of the
federal anti-kickback and criminal healthcare fraud statutes. A person or entity no longer
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needs to have actual knowledge of this statute or specific intent to violate it. Moreover, the ACA provides that the government may assert that a claim including items or services resulting from
a violation of the federal anti-kickback statute constitutes a false or fraudulent claim for purposes of the False Claims Act.
If our
operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, exclusion from participation
in government health care programs, such as Medicare and Medicaid, imprisonment, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations.
If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could
have a material adverse effect on our business, financial condition or results of operations.
Our research and development
activities and our third-party manufacturers and suppliers activities involve the controlled storage, use, and disposal of hazardous materials, including the components of our product candidates and other hazardous compounds. We and our
manufacturers and suppliers are subject to laws and regulations governing the use, manufacture, storage, handling, and disposal of these hazardous materials. In some cases, these hazardous materials and various wastes resulting from their use are
stored at our and our manufacturers facilities pending their use and disposal. We cannot eliminate the risk of contamination, which could cause an interruption of our research and development efforts, commercialization efforts and business
operations and environmental damage resulting in costly
clean-up
and liabilities under applicable laws and regulations governing the use, storage, handling, and disposal of these materials and specified waste
products. Although we believe that the safety procedures utilized by us and our third-party manufacturers for handling and disposing of these materials generally comply with the standards prescribed by these laws and regulations, we cannot guarantee
that this is the case or eliminate the risk of accidental contamination or injury from these materials. In such an event, we may be held liable for any resulting damages and such liability could exceed our resources and state or federal or other
applicable authorities may curtail our use of specified materials and/or interrupt our business operations. Furthermore, environmental laws and regulations are complex, change frequently, and have tended to become more stringent. We cannot predict
the impact of such changes and cannot be certain of our future compliance. Given the nature of the research and development work conducted by us, we do not currently carry biological or hazardous waste insurance coverage.
Laws and regulations governing international operations may preclude us from developing, manufacturing and selling certain products outside of the
United States and require us to develop, implement and maintain costly compliance programs.
To develop, manufacture and sell
certain products outside the United States, we must dedicate resources to comply with numerous laws and regulations in each jurisdiction in which we operate. The Foreign Corrupt Practices Act (FCPA), prohibits any United States
individual or business from paying, offering, authorizing payment or offering anything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of the foreign entity
in order to assist the individual or business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the United States to comply with certain accounting provisions requiring the company to maintain books
and records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for international operations.
Compliance with the FCPA is expensive and difficult, particularly in countries in which corruption is a recognized problem. In addition, the
FCPA presents particular challenges in the pharmaceutical industry, because, in many countries, hospitals are operated by the government, and doctors and other hospital employees may be considered government employees or foreign officials. In other
circumstances, certain payments to hospitals in connection with clinical trials and other work have been deemed to be improper payments to government officials and have led to FCPA enforcement actions.
Various laws, regulations and executive orders also restrict the use and dissemination outside of the United States, or the sharing with
certain
non-United
States nationals, of information classified for national security purposes, as well as certain products and technical data relating to those products. These laws may preclude us from
developing, manufacturing, or selling certain products and product candidates outside of the U.S., which could limit our growth potential and increase our development costs.
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The failure to comply with laws governing international business practices may result in
substantial civil and criminal penalties and suspension or debarment from government contracting. The SEC also may suspend or bar issuers from trading securities on U.S. exchanges for violations of the FCPAs accounting provisions and export
control laws.
Our internal computer systems, or those of our collaborators or other contractors or consultants, may fail or suffer security
breaches, which could result in a material disruption of our product development programs.
Our internal computer systems and
those of our current and any future collaborators and other contractors or consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. While we
have not experienced any such material system failure, accident or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our development programs and our
business operations, whether due to a loss of our trade secrets or other proprietary information or other similar disruptions. For example, the loss of preclinical or clinical trial data could result in delays in our regulatory approval efforts and
significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary
information, we could incur liability, our competitive position could be harmed and the further development and commercialization of our product candidates could be delayed.
Ethical, legal and social concerns about synthetic biology and genetic engineering could limit or prevent the use of our technologies and limit our
revenues.
Our technologies involve the use of synthetic biology and genetic engineering. Public perception about the safety and
environmental hazards of, and ethical concerns over, synthetic biology and genetic engineering could influence public acceptance of our technologies, product candidates and processes. If we and our collaborators are not able to overcome the ethical,
legal and social concerns relating to synthetic biology and genetic engineering, our technologies, product candidates and processes may not be accepted. These concerns could result in increased expenses, regulatory scrutiny and increased regulation,
trade restrictions on imports of Synthetic Biotic medicines, delays or other impediments to our programs or the public acceptance and commercialization of Synthetic Biotic medicines. Further, there is a risk that Synthetic Biotic medicines made
using our technologies could result in adverse health effects or other adverse events, which could also lead to negative publicity. We design and produce product candidates with characteristics comparable or disadvantaged to those found in naturally
occurring organisms or enzymes in a controlled laboratory; however, the release of such organisms into uncontrolled environments could have unintended consequences. Any adverse effect resulting from such a release could have a material adverse
effect on our business, financial condition or results of operations and we may have exposure to liability for any resulting harm.
Risks Related to
Our Intellectual Property
We may not be successful in obtaining or maintaining necessary rights to Synthetic Biotic targets, product candidates
and processes for our development pipeline through acquisitions and
in-licenses.
Presently, we have rights to certain intellectual property, through licenses from third parties and under patents and patent applications
owned by us. The growth of our business will likely depend in part on our ability to obtain, maintain or enforce our and our licensors intellectual property rights and also acquire or
in-license
additional proprietary rights. For example, our programs may involve additional product candidates or delivery systems that may require the use of additional proprietary rights held by third parties. Our ultimate product candidates may also require
specific formulations to work effectively and efficiently. These formulations may be covered by intellectual property rights held by others. We may be unable to acquire or
in-license
any relevant third-party
intellectual property rights that we identify as necessary or important to our business operations.
In addition, our product candidates
may require specific formulations to work effectively and efficiently and these rights may be held by other third parties. We may be unable to develop, acquire or
in-license
compositions, methods of use,
processes or other third-party intellectual property rights from third parties that we identify. The licensing and acquisition of third-party intellectual property rights is a competitive area, and a number of other companies may also be pursuing
strategies to license or acquire third-party intellectual property rights that we may consider attractive. These companies could have a competitive advantage over us due to their size, cash resources and greater clinical development and
commercialization capabilities.
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For example, we have previously and may continue to collaborate with academic institutions to
accelerate our preclinical research or development under written agreements with these institutions. Typically, these institutions provide an option to negotiate a license to any of the institutions rights in technology resulting from the
collaboration. Regardless of such right of first negotiation for intellectual property, we may be unable to negotiate a license within the specified time frame or under terms that are acceptable to it. If we are unable to do so, the institution may
offer the intellectual property rights to other parties, potentially blocking our ability to pursue our program.
In addition, companies
that perceive us to be a competitor may be unwilling to assign or license rights to us. We also may be unable to license or acquire third-party intellectual property rights on terms that would allow us to make an appropriate return on our
investment. If we are unable to successfully obtain rights to third-party intellectual property rights, our business, financial condition and prospects for growth could suffer.
We intend to rely on patent rights and the status of our product candidates, if approved, as biologics eligible for exclusivity under the Biologics
Price Competition and Innovation Act (BPCIA). If Synlogic is unable to obtain or maintain exclusivity from the combination of these approaches, Synlogic may not be able to compete effectively in our markets.
We rely or will rely upon a combination of patents, trade secret protection, and confidentiality agreements to protect the intellectual
property related to our technologies and product candidates. Our success depends in large part on our and our licensors ability to obtain regulatory exclusivity and maintain patent and other intellectual property protection in the United
States and in other countries with respect to our proprietary technology and products.
We have sought to protect our proprietary position
by filing patent applications in the United States and abroad related to our product candidates that are important to our business. This process is expensive and time consuming, and we may not be able to file and prosecute all necessary or desirable
patent applications at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection.
The patent position of biotechnology and pharmaceutical companies generally is highly uncertain and involves complex legal and factual
questions for which legal principles remain unsolved. The patent applications that we own or
in-license
may fail to result in issued patents with claims that cover our product candidates in the United States
or in other foreign countries. There is no assurance that all potentially relevant prior art relating to our patents and patent applications has been found, which can invalidate a patent or prevent a patent from issuing from a pending patent
application. Even if patents do successfully issue, and even if such patents cover our product candidates, third parties may challenge their validity, enforceability, or scope, which may result in such patents being narrowed, found unenforceable or
invalidated. Furthermore, even if they are unchallenged, our patents and patent applications may not adequately protect our intellectual property, provide exclusivity for our product candidates, or prevent others from designing around our claims.
Any of these outcomes could impair our ability to prevent competition from third parties, which may have an adverse impact on our business.
We, independently or together with our licensors, have filed several patent applications covering various aspects of our product candidates.
We cannot offer any assurances about which, if any, patents will issue, the breadth of any such patent or whether any issued patents will be found invalid and unenforceable or will be threatened by third parties. Any successful opposition to these
patents or any other patents owned by or licensed to us after patent issuance could deprive us of rights necessary for the successful commercialization of any product candidates that we may develop. Further, if we encounter delays in regulatory
approvals, the period of time during which we could market a product candidate under patent protection could be reduced.
Even if we
cannot obtain and maintain effective protection of exclusivity from our regulatory efforts and intellectual property rights, including patent protection, data exclusivity or orphan drug exclusivity, for our product candidates, we believe that our
product candidates will be protected by exclusivity that prevents approval of a biosimilar in the United States for a period of twelve years from the time the product to which it claims similarity was first approved. However, The Biologics Price
Competition and Innovation Act of 2009, Title VII, Subtitle A of the Patent Protection and Affordable Care Act,
Pub.L.No.111-148,
124 Stat.119, Sections
7001-02
signed
into law March 23, 2010, and codified in 42 U.S.C. §262
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(the BPCIA), created an elaborate and complex patent dispute resolution mechanism for biosimilars that could prevent us from launching our product candidates in the United States or
could substantially delay such launches. Current biosimilars litigation are addressing certain requirements of the BPCIA which is creating uncertainty over how certain terms of the BPCIA should be construed and this, presents uncertainty for both
the biologics innovator and biosimilar party. The BPCIA mechanism required for biosimilar applicants may pose greater risk that patent infringement litigation will disrupt our activities and add increased expenses as well as divert managements
attention. If a biosimilar version of one of our product candidates were approved in the United States, it could have a negative effect on our business.
We may not have sufficient patent term protections for our product candidates to effectively protect our business.
Patents have a limited term. In the United States, the statutory expiration of a patent is generally 20 years after it is filed. Although
various extensions may be available, the life of a patent, and the protection it affords, is limited. Even if patents covering our product candidates are obtained, once the patent life has expired for a product candidate, we may be open to
competition. In addition, upon issuance in the United States any patent term can be adjusted based on specified delays caused by the applicant(s) or the USPTO.
Patent term extensions under the Hatch-Waxman Act in the United States and under supplementary protection certificates in Europe may be
available to extend the patent or data exclusivity terms of our product candidates. We will likely seek patent term extensions, and we cannot provide any assurances that any such patent term extensions will be obtained and, if so, for how long. As a
result, we may not be able to maintain exclusivity for our product candidates for an extended period after regulatory approval, if any, which would negatively impact our business, financial condition, results of operations and prospects. If we do
not have sufficient patent terms or regulatory exclusivity to protect our product candidates, our business and results of operations will be adversely affected.
Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our products, and recent patent
reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents.
As is the case with other biotechnology companies, our success is heavily dependent on patents. Obtaining and enforcing patents in the
biotechnology industry involves both technological and legal complexity, and is therefore costly, time-consuming and inherently uncertain. In addition, the United States has recently enacted and is currently implementing wide-ranging patent reform
legislation. Recent U.S. Supreme Court rulings have narrowed the scope of patent protection available in specified circumstances and weakened the rights of patent owners in specified situations. In addition to increasing uncertainty with regard to
our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by the U.S. Congress, the federal courts, and the USPTO, the laws and
regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future.
If we are unable to maintain effective proprietary rights for our product candidates or any future product candidates, we may not be able to compete
effectively in our proposed markets.
In addition to the protection afforded by patents, we rely on trade secret protection and
confidentiality agreements to protect proprietary
know-how
that is not patentable or that we elect not to patent. We also utilize processes for which patents are difficult to enforce. In addition, other
elements of our products, and many elements of our product candidate discovery and development processes involve proprietary
know-how,
information or technology that is not covered by patents. Trade secrets
may be difficult to protect. We seek to protect our proprietary technology and processes, in part, by entering into confidentiality agreements with our employees, consultants, collaborators, advisors, independent contractors or other third parties.
We also seek to preserve the integrity and confidentiality of our data and trade secrets, including by maintaining physical and electronic security of our premises and our information technology systems. While we have confidence in these
individuals, organizations and systems, agreements or security measures may be breached, and we may not have adequate remedies for any breach. In addition, competitors may otherwise gain access to our trade secrets or independently develop
substantially equivalent information and techniques. Furthermore, the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of the United States. As a result, we may encounter
significant problems in protecting and defending our intellectual property both in the United States and abroad. If we are unable to prevent unauthorized material disclosure of our intellectual property to third parties, or misappropriation of our
intellectual property by third parties, we may not be able to establish or maintain a competitive advantage in our market, which could materially adversely affect our business, operating results, and financial condition.
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Although Synlogic expects all of our employees and consultants to assign their inventions to us,
and all of our employees, consultants, collaborators, advisors, independent contractors and any third parties who have access to our proprietary
know-how,
information, or technology to enter into
confidentiality agreements, we cannot provide any assurances that all such agreements have been duly executed or that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain
access to our trade secrets or independently develop substantially equivalent information and techniques. Misappropriation or unauthorized disclosure of our trade secrets could impair our competitive position and may have a material adverse effect
on our business, financial condition or results of operations. Additionally, if the steps taken to maintain our trade secrets are deemed inadequate, we may have insufficient recourse against third parties for misappropriating the trade secret.
Third-party claims of intellectual property infringement may prevent or delay our development and commercialization efforts.
Our commercial success depends in part on our ability to develop, manufacture, market and sell our product candidates and use our proprietary
technology without infringing the patent rights of third parties. Numerous third-party U.S. and
non-U.S.
issued patents and pending applications exist in the area of Synthetic Biotics. We are aware of U.S. and
foreign patents and pending patent applications owned by third parties that cover similar therapeutic uses as the product candidates we are developing. We are currently monitoring these patents and patent applications. We may in the future pursue
available proceedings in the U.S. and foreign patent offices to challenge the validity of these patents and patent applications. In addition, or alternatively, we may consider whether to seek to negotiate a license of rights to technology covered by
one or more of such patents and patent applications. If any patents or patent applications cover our product candidates or technologies, we may not be free to manufacture or market our product candidates as planned, absent such a license, which may
not be available to us on commercially reasonable terms, or at all.
It is also possible that we have failed to identify relevant
third-party patents or applications. For example, applications filed before November 29, 2000 and applications filed after that date that will not be filed outside the United States remain confidential until patents issue. Moreover, it is
difficult for industry participants, including us, to identify all third-party patent rights that may be relevant to our product candidates and technologies because patent searching is imperfect due to differences in terminology among patents,
incomplete databases and the difficulty in assessing the meaning of patent claims. We may fail to identify relevant patents or patent applications or may identify pending patent applications of potential interest but incorrectly predict the
likelihood that such patents may issue with claims of relevance to our technology. In addition, we may be unaware of one or more issued patents that would be infringed by the manufacture, sale or use of a current or future product candidate, or we
may incorrectly conclude that a third-party patent is invalid, unenforceable or not infringed by our activities. Additionally, pending patent applications that have been published can, subject to specified limitations, be later amended in a manner
that could cover our technologies, our product candidates or the use of our product candidates.
There have been many lawsuits and other
proceedings filed by third parties involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries, including patent infringement lawsuits, interferences, oppositions, and reexamination, post-grant review
and equivalent proceedings before the USPTO and corresponding foreign patent offices. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are developing product
candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our product candidates may be subject to claims of infringement of the patent rights of third parties.
Parties making claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to further develop
and commercialize one or more of our product candidates. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from our business. In the event of a
successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys fees for willful infringement, pay royalties, redesign our infringing products or obtain one or more licenses from
third parties, which may be impossible or require substantial time and monetary expenditure.
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We depend, in part, on our licensors to file, prosecute, maintain, defend and enforce patents and patent
applications that are material to our business.
While we normally seek and gain the right to fully prosecute the patent
applications relating to our product candidates, there may be times when the patent applications enabling our product candidates are controlled by our licensors. If any of our existing or future licensors fail to appropriately and broadly prosecute
and maintain patent protection for patents covering any of our product candidates, our ability to develop and commercialize those product candidates may be adversely affected and we may not be able to prevent competitors from making, using,
importing, and selling competing products. In addition, even where we now have the right to control patent prosecution of patents and patent applications we have licensed from third parties, we may still be adversely affected or prejudiced by
actions or inactions of our licensors in effect from actions prior to us assuming control over patent prosecution.
If we fail to comply with
obligations in the agreements under which we license intellectual property and other rights from third parties or otherwise experience disruptions to our business relationships with our licensors, we could lose license rights that are important to
our business.
We are a party to certain intellectual property license agreements that are important to our business and expect to
enter into additional license agreements in the future. Our existing agreements impose, and we expect that future license agreements will impose, certain obligations, including the payment of milestones and royalties based on revenues from sales of
our products utilizing the technologies licensed from our licensors, and such obligations could adversely affect the overall profitability for us of any products that we may seek to commercialize. In addition, we will need to outsource and rely on
third parties for many aspects of the clinical development, sales and marketing of our product candidates covered under our license agreements. Delay or failure by these third parties could adversely affect the continuation of our license agreements
with our third-party licensors. If we fail to comply with our obligations under these agreements, or we are subject to a bankruptcy, these agreements may be subject to termination by the licensor which could have a material adverse effect on our
business.
We may be involved in lawsuits to protect or enforce our patents or the patents of our licensors, which could be expensive, time
consuming, and unsuccessful.
Competitors may infringe our patents or the patents of our licensors. To cease such infringement or
unauthorized use, we or one of our licensing partners may be required to file patent infringement claims against a third party to enforce one of our patents which can be expensive, time-consuming and unpredictable. In addition, in an infringement
proceeding or a declaratory judgment action against us, a court may decide that one or more of our patents is not valid or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do
not cover the technology in question. An adverse result in any litigation or defense proceeding could put one or more of our patents at risk of being invalidated, held unenforceable or interpreted narrowly and could put our patent applications at
risk of not issuing. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from our business.
If we or one of our licensing partners were to initiate legal proceedings against a third party to enforce a patent covering one of our
product candidates, the defendant could counterclaim that the patent covering our product candidate is invalid and/or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are
commonplace, and there are numerous grounds upon which a third party can assert invalidity or unenforceability of a patent. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of
novelty, obviousness, written description, clarity or
non-enablement.
Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant
information from the USPTO, or made a misleading statement, during prosecution. Third parties may also raise similar claims before administrative bodies in the United States or other jurisdictions, even outside the context of litigation. Such
mechanisms include
re-examination,
inter partes review, post-grant review and equivalent proceedings in foreign jurisdictions, such as opposition or derivation proceedings. Such proceedings could result in
revocation or amendment to our patents in such a way that they no longer cover and protect our product candidates. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to the validity of our
patents, for example, we cannot be certain that there is no invalidating prior art of which we, our patent counsel, and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity,
unpatentability and/or unenforceability, we may lose at least part, and perhaps all, of the patent protection on our product candidates. Such a loss of patent protection could have a material adverse impact on our business.
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Interference or derivation proceedings provoked by third parties or brought by us or declared by
the USPTO may be necessary to determine the priority of inventions or correct inventorship with respect to our patents or patent applications or those of our licensors. An unfavorable outcome could result in a loss of our current patent rights and
could require us to cease using the related technology or to attempt to license rights to us from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms. Our defense of
litigation, derivation or interference proceedings may result in a decision adverse to our interests and, even if successful, may result in substantial costs and distract our management and other employees. In addition, we may be unable to raise the
funds necessary to conduct our clinical trials, continue our research programs, license necessary technology from third parties, or enter into development partnerships that would help us bring our product candidates to market.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that
some of our confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions, or other interim proceedings or developments. Any disclosure of
confidential information could adversely affect our business. If securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock.
We may be subject to claims challenging the inventorship of our patents and other intellectual property.
We may in the future be subject to claims that former employees, consultants, collaborators, advisors, independent contractors or other third
parties have an interest in our patents or other intellectual property as an inventor or
co-inventor
or other claims challenging the inventorship of our patents or ownership of our intellectual property
(including patents and intellectual property that we
in-license).
Therefore, our rights to these patents may not be exclusive and third parties, including competitors, may have access to intellectual property
that is important to our business. In addition,
co-owners
from whom we do not yet have a license or assignment may raise claims surrounding inventorship or ownership of patents that ultimately issue from this
patent family, potentially resulting in issued patents to which we would not have rights under our existing license agreements. Further, in jurisdictions outside the United States, a license may not be enforceable unless all the owners of the
intellectual property agree or consent to the license. In addition, we may have inventorship disputes arising from conflicting obligations of consultants or others who are involved in developing our product candidates. Litigation may be necessary to
defend against these and other claims challenging inventorship of our patents. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or
right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to
management and other employees.
We may be subject to claims that our employees, consultants, collaborators, advisors, independent contractors or
other third parties have wrongfully used or disclosed confidential information of third parties or that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.
We have received confidential and proprietary information from third parties. In addition, we employ individuals who were previously employed
at universities, academic research institutions and at other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although we have written agreements with and makes every effort to ensure that our employees,
consultants, collaborators, advisors, independent contractors or other third parties do not use the proprietary information or intellectual property rights of others in their work for us, we may in the future be subject to claims that our employees,
consultants, collaborators, advisors, independent contractors or other third parties have inadvertently or intentionally used or disclosed confidential information of these third parties. Litigation may be necessary to defend against these claims.
If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel, which could adversely impact our business. Even if we are successful in defending against such claims,
litigation could result in substantial costs and be a distraction to management and other employees.
We may not be able to protect our intellectual
property rights throughout the world.
We have limited intellectual property rights outside the United States. Filing,
prosecuting, and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and intellectual property rights in some countries outside the United States can have a different scope and strength and
be less extensive than those in
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the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, we
may not be able to prevent third parties (including competitors) from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other
jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we have patent protection,
but where enforcement rights are not as strong as those in the United States. These products may compete with our products and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The
legal systems of some countries, particularly some developing countries, do not favor the enforcement of patents, trade secrets, and other intellectual property protection, particularly those relating to biopharmaceutical products, which could make
it difficult in those jurisdictions for us to stop the infringement or misappropriation of our patents or other intellectual property rights, or the marketing of competing products in violation of our proprietary rights. Proceedings to enforce our
patents and other intellectual property rights in foreign jurisdictions, whether or not successful, could result in substantial costs and divert our efforts and attention from other aspects of our business. Furthermore, such proceedings could put
our patents at risk of being invalidated, held unenforceable or interpreted narrowly and could put our patent applications at risk of not issuing and could provoke third parties to assert claims of infringement or misappropriation against us. We may
not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a
significant commercial advantage from the intellectual property that we develop or license.
If our trademarks and trade names are not adequately
protected, we may not be able to build name recognition in our markets of interest and our business may be adversely affected.
We
have filed for trademark registration of certain marks relating to our current branding. If our trademarks and trade names are not adequately protected, we may not be able to build name recognition in our markets of interest and our business may be
adversely affected. Our unregistered trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined to be infringing on other marks. We may not be able to protect our rights to these trademarks and trade
names, which we need to build name recognition among potential partners or customers in our markets of interest. At times, competitors may adopt trade names or trademarks similar to ours, thereby impeding our ability to build brand identity and
possibly leading to market confusion. In addition, there could be potential trade name or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate variations of our unregistered trademarks or
trade names. Over the long term, if we are unable to successfully register our trademarks and trade names and establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively and our business may be
adversely affected. Our efforts to enforce or protect our proprietary rights related to trademarks, trade secrets, domain names, copyrights or other intellectual property may be ineffective and could result in substantial costs and diversion of
resources and could adversely impact our financial condition or results of operations.
Risks Related to Our Reliance on Third Parties
We rely, and expect to continue to rely, on third parties to conduct some aspects of our product formulation, research, preclinical, and clinical
studies, and those third parties may not perform satisfactorily, including by failing to meet deadlines for the completion of such formulation, research or testing.
We do not independently conduct all aspects of our drug discovery activities, compound formulation research or preclinical studies of product
candidates. We currently rely, and expect to continue to rely, on third parties to conduct some aspects of our research and development and preclinical studies. Any of these third parties may terminate their engagements with us at any time. If we
need to enter into alternative arrangements, it would delay our product development activities. Our reliance on these third parties for research and development activities reduces our control over these activities but does not relieve us of our
responsibilities. For example, for product candidates that we develop and commercialize on our own, we will remain responsible for ensuring that each of our studies that support our clinical trial applications and our clinical trials are conducted
in accordance with the study plan and protocols for the trial. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct our studies in accordance with regulatory requirements or our stated
study plans and protocols, we will not be able to complete, or may
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be delayed in completing, the necessary preclinical studies to enable us or our strategic alliance partners to select viable product candidates for clinical trial application submissions and will
not be able to, or may be delayed in our efforts to, successfully develop and commercialize such product candidates.
We rely on third-party supply
and manufacturing partners for drug supplies for our research and development, preclinical activities, and clinical activities, and may do the same for any commercial supplies of our product candidates.
We rely on third-party supply and manufacturing partners to supply the materials and components for, and manufacture, a portion of our
research and development and preclinical study drug supplies and may do the same for any clinical trial drug supplies. We have not yet manufactured or formulated any product candidate on a commercial scale and may not be able to do so for any of our
product candidates. We will work to develop and optimize our manufacturing process, and we cannot be sure that the process will result in therapies that are safe, potent or effective.
We do not own manufacturing facilities or supply sources for such components and materials, but may develop these capabilities in the future.
There can be no assurance that our supply of research and development, preclinical and clinical development drugs and other materials will not be limited, interrupted, restricted in certain geographic regions or of satisfactory quality or continue
to be available at acceptable prices. In particular, any replacement of any product formulation manufacturer we may engage could require significant effort and expertise because there may be a limited number of qualified replacements.
The manufacturing process for a product candidate is subject to FDA and foreign regulatory authority review. Suppliers and manufacturers must
meet applicable manufacturing requirements and undergo rigorous facility and process validation tests required by regulatory authorities in order to comply with regulatory standards, such as cGMP regulations. In the event that any of our suppliers
or manufacturers fails to comply with such requirements or to perform our obligations to us in relation to quality, timing or otherwise, or if our supply of components or other materials becomes limited or interrupted for other reasons, we may be
forced to manufacture the materials ourselves, for which we currently do not have the capabilities or resources, or enter into an agreement with another third party, which we may not be able to do on reasonable terms, if at all. In some cases, the
technical skills or technology required to manufacture our product candidates may be unique or proprietary to the original manufacturer and we may have difficulty, or there may be contractual restrictions prohibiting us from transferring such skills
or technology to another third party and a feasible alternative may not exist. These factors would increase our reliance on such manufacturer or require us to obtain a license from such manufacturer in order to have another third party manufacture
our product candidates. If we are required to change manufacturers for any reason, we will be required to verify that the new manufacturer maintains facilities and procedures that comply with quality standards and with all applicable regulations and
guidelines. The delays associated with the verification of a new manufacturer could negatively affect our ability to develop product candidates in a timely manner or within budget.
We may rely on third party manufacturers if we receive regulatory approval for any product candidate. To the extent that we have existing, or
enter into future, manufacturing arrangements with third parties, we will depend on these third parties to perform their obligations in a timely manner consistent with contractual and regulatory requirements, including those related to quality
control and assurance. If we are unable to obtain or maintain third-party manufacturing for product candidates, or to do so on commercially reasonable terms, we may not be able to develop and commercialize our product candidates successfully. Our or
a third partys failure to execute on our manufacturing requirements could adversely affect our business in a number of ways, including:
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an inability to initiate or continue clinical trials of product candidates under development;
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delay in submitting regulatory applications, or receiving regulatory approvals, for product candidates;
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loss of the cooperation of a collaborator;
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subjecting our product candidates to additional inspections by regulatory authorities;
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requirements to cease distribution or to recall batches of our product candidates; and
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in the event of approval to market and commercialize a product candidate, an inability to meet commercial demands for our products.
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We enter into various contracts in the normal course of our business in which we indemnify the other party
to the contract. In the event we have to perform under these indemnification provisions, it could have a material adverse effect on our business, financial condition and results of operations.
In the normal course of business, we periodically enter into academic, commercial, service, collaboration, licensing, consulting and other
agreements that contain indemnification provisions. With respect to our academic and other research agreements, we typically indemnify the institution and related parties from losses arising from claims relating to the products, processes or
services made, used, sold or performed pursuant to the agreements for which we have secured licenses, and from claims arising from our or our sublicensees exercise of rights under the agreement. With respect to our collaboration agreements, we
indemnify our collaborators from any third-party product liability claims that could result from the production, use or consumption of the product, as well as for alleged infringements of any patent or other intellectual property right by a third
party. With respect to consulting agreements, we indemnify consultants from claims arising from the good faith performance of their services.
Should our obligation under an indemnification provision exceed applicable insurance coverage or should we be denied insurance coverage, our
business, financial condition and results of operations could be adversely affected. Similarly, if we are relying on a collaborator to indemnify us and the collaborator is denied insurance coverage or the indemnification obligation exceeds the
applicable insurance coverage, and if the collaborator does not have other assets available to indemnify us, our business, financial condition and results of operations could be adversely affected.
To the extent we are able to enter into collaborative arrangements or strategic alliances, we may be exposed to risks related to those collaborations
and alliances.
We are currently party to an agreement with AbbVie. Biotechnology companies sometimes become dependent upon
collaborative arrangements or strategic alliances to complete the development and commercialization of product candidates. If we elect to enter into collaborative arrangements or strategic alliances, these arrangements may place the development of
our product candidates outside our control, may require us to relinquish important rights or may otherwise be on terms unfavorable to us.
Dependence on collaborative arrangements or strategic alliances would subject us to a number of risks, including the risk that:
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we may not be able to control the amount and timing of resources that our collaborators may devote to the relevant product candidates;
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our collaborators may experience financial difficulties;
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we may be required to relinquish important rights, such as marketing and distribution rights;
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business combinations or significant changes in a collaborators business strategy may also adversely affect a collaborators willingness or ability to complete our obligations under any arrangement;
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a collaborator could independently move forward with a competing drug candidate developed either independently or in collaboration with others, including our competitors; and
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collaborative arrangements are often terminated or allowed to expire, which would delay the development and may increase the cost of developing our drug candidates.
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We may attempt to form collaborations in the future with respect to our product candidates, but we may not be able to do so, which may cause us to alter
our development and commercialization plans.
We may attempt to form strategic collaborations, create joint ventures or enter into
licensing arrangements with third parties with respect to our programs or platform that we believe will complement or augment our existing business. We may face significant competition in seeking appropriate strategic collaborators, and the
negotiation process to secure appropriate terms is time consuming and complex. We may not be successful in our efforts to establish such a strategic collaboration for any product candidates and programs on terms that are acceptable to us, or at all.
This may be because our product candidates and programs may be deemed to be at too early of a stage of development for collaborative effort, our research and development pipeline may be viewed as insufficient, the competitive or intellectual
property landscape may be viewed as too intense or risky, and/or third parties may not view our product candidates and programs as having sufficient potential for commercialization, including the likelihood of an adequate safety and efficacy
profile.
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Any delays in identifying suitable collaborators and entering into agreements to develop and/or
commercialize our product candidates could delay the development or commercialization of our product candidates, which may reduce their competitiveness even if they reach the market. Absent a strategic collaborator, we would need to undertake
development and/or commercialization activities at our own expense. If we elect to fund and undertake development and/or commercialization activities on our own, we may need to obtain additional expertise and additional capital, which may not be
available to us on acceptable terms or at all. If we are unable to do so, we may not be able to develop our product candidates or bring them to market and our business may be materially and adversely affected.
If we commit certain material breaches under our agreement with the Gates Foundation, and fail to cure them, the Gates Foundation may exercise a right
to obtain a license to certain of our intellectual property or require us to redeem shares of our Capital Stock held by the Gates Foundation and our affiliates.
In September 2014, we entered into a letter agreement with the Bill & Melinda Gates Foundation (the Gates Foundation). In
connection with the agreement, the Gates Foundation purchased $1.0 million of Series
A-1
preferred stock, $1.4 million of Series
A-2
preferred stock and
$2.6 million of
Class A-3
preferred units, and we committed to use a portion of the investment by the Gates Foundation to generally develop our Synthetic Biotic platform for potential use in
neglected diseases prioritized by the Gates Foundation. In the event the Gates Foundation terminates the agreement for certain specified uncured material breaches by us, we will be obligated, among other remedies, to redeem the securities purchased
by the Gates Foundation or to facilitate the purchase of such securities by a third party (in certain circumstances, We may instead satisfy such obligation by registering the resale of the securities into the public markets or through the ability of
the Gates Foundation to resell the securities without volume limitations in reliance on Rule 144 under the Securities Act), and/or the Gates Foundation may exercise its right to obtain a
non-exclusive
license
to certain of our intellectual property for use in certain prioritized diseases in developing countries. Additionally, in the six months following such sale or redemption, if we engage in certain specified corporate transactions that would value the
sold or redeemed shares at more than 200% of the valuation used for the sale or redemption, we will be required to compensate the Gates Foundation for the difference between what the Gates Foundation would have received and what it actually received
under the sale or redemption. If we instead elect to register the resale of the securities into the public markets or the Gates Foundation resells the securities in reliance on Rule 144, we will be required to compensate the Gates Foundation for the
difference between what the Gates Foundation initially invested and what it actually received under such resale if there is any shortfall. If we are required to redeem such shares or to compensate the Gates Foundation following a specified corporate
transaction or a resale, our financial condition could be materially and adversely affected. If the Gates Foundation exercises its right to obtain a
non-exclusive
license and develops and commercializes
product candidates and products that we are also developing and commercializing, such exercise could have an adverse impact on our market position.
Risks Related to Commercialization of Our Product Candidates
If any of our product candidates are approved for marketing and commercialization and we are unable to develop sales, marketing and distribution
capabilities on our own or enter into agreements with third parties to perform these functions on acceptable terms, we will be unable to successfully commercialize any such future products.
We currently have no sales, marketing or distribution capabilities or experience. If any of our product candidates is approved for marketing
and commercialization, we will need to develop internal sales, marketing and distribution capabilities to commercialize such products, which would be expensive and time-consuming, or enter into collaborations with third parties to perform these
services. If we decide to market our products directly, we will need to commit significant financial and managerial resources to develop a marketing and sales force with technical expertise and supporting distribution, administration and compliance
capabilities. If we rely on third parties with such capabilities to market our products or decide to
co-promote
products with collaborators, we will need to establish and maintain marketing and distribution
arrangements with third parties, and there can be no assurance that we will be able to enter into such arrangements on acceptable terms or at all. In entering into third-party marketing or distribution arrangements, any revenue we receive will
depend upon the efforts of third parties and there can be no assurance that such third parties will establish adequate sales and distribution capabilities or be successful in gaining market acceptance of any approved product. If we are not
successful in commercializing any product approved for marketing and commercialization in the future, either on our own or through third parties, our business, financial condition, results of operations and prospects may be adversely affected.
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If the market opportunities for our product candidates are smaller than we believe they are, we may not
meet our revenue expectations and, assuming approval of a product candidate, our business may suffer. Because the patient populations in the market for our product candidates may be small, we must be able to successfully identify patients and
acquire a significant market share to achieve profitability and growth.
Given the small number of patients who have the diseases
that we are targeting, our eligible patient population and pricing estimates may differ significantly from the actual market addressable by our product candidates. Our projections of both the number of people who have applicable diseases, as well as
the subset of people with these diseases who have the potential to benefit from treatment with our product candidates, are based on our beliefs and estimates. These estimates have been derived from a variety of sources, including scientific
literature, patient foundations, or market research, and may prove to be incorrect. Further, new studies may change the estimated incidence or prevalence of these diseases. The number of patients may turn out to be lower than expected. The
potentially addressable patient population for each of our product candidates may be limited or may not be amenable to treatment with our product candidates, and new patients may become increasingly difficult to identify or gain access to, which
would adversely affect our business, financial condition, results of operations and prospects.
We face substantial competition and our competitors
may discover, develop or commercialize products faster or more successfully than us.
The development and commercialization of new
products is highly competitive. We face competition from major pharmaceutical companies, specialty pharmaceutical companies, biotechnology companies, universities and other research institutions worldwide with respect to our product candidates that
we may seek to develop or commercialize in the future. For example, Horizon Pharma plc, Dimension Therapeutics, Inc. (currently in definitive agreement for acquisition by Ultragenyx Pharmaceutical Inc.), Aeglea BioTherapeutics, Inc., Arcturus
Therapeutics Inc., Castle Creek Pharma LLC, PhaseRx, Inc., Translate Bio (formerly Rana Therapeutics) and Selecta Biosciences, Inc. have developed or are developing product candidates for the treatment of UCD; Valeant Pharmaceuticals International,
Inc., Ocera Therapeutics, Inc., Umecrine Cognition AB, Salix Pharmaceuticals, Ltd, as well as other preclinical and discovery stage companies have developed or are each developing product candidates for the treatment of HE; and BioMarin, Inc.,
MipSalus ApS, Dimension Therapeutics, Inc. and Synthetic Biologics, Inc. have developed or are developing product candidates for the treatment of PKU. Our competitors may succeed in developing, acquiring or licensing technologies and products that
are more effective or less costly than the product candidates that we are currently developing or that we may develop, which could render our product candidates obsolete and noncompetitive.
In addition to the competition we face from alternative therapies for the diseases we intend to target with our product candidates, we are
also aware of several companies that are also working specifically to develop engineered bacteria as cellular drug therapies, such as Intrexon Corp. Further there are several companies working to develop other similar products. Many of our
competitors have substantially greater financial, technical and other resources, such as larger research and development staff and experienced marketing and manufacturing organizations. Third-party payors, including governmental and private
insurers, may also encourage the use of generic products.
If our competitors obtain marketing approval from the FDA or comparable foreign
regulatory authorities for their product candidates more rapidly than us, it could result in our competitors establishing a strong market position before we are able to enter the market.
Many of our competitors have materially greater name recognition and financial, manufacturing, marketing, research and drug development
resources than we do. Additional mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentrated in our competitors. Large pharmaceutical companies in particular have extensive
expertise in preclinical and clinical testing and in obtaining regulatory approvals for drugs. In addition, academic institutions, government agencies, and other public and private organizations conducting research may seek patent protection with
respect to potentially competitive products or technologies. These organizations may also establish exclusive collaborative or licensing relationships with our competitors. Failure of our product candidates to effectively compete against established
treatment options or in the future with new products currently in development would harm our business, financial condition, results of operations and prospects.
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The commercial success of any of our current or future product candidates will depend upon the degree of
market acceptance by physicians, patients, third-party payors, and others in the medical community.
Even with approvals from the
FDA and comparable foreign regulatory authorities, the commercial success of our products will depend in part on the health care providers, patients, and third-party payors accepting our product candidates as medically useful, cost-effective, and
safe. Any product that we bring to the market may not gain market acceptance by physicians, patients and third-party payors. The degree of market acceptance of any of our products will depend on a number of factors, including but not limited to:
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the efficacy of the product as demonstrated in clinical trials and potential advantages over competing treatments;
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the safety and side effect profile of the product as demonstrated in clinical trials and potential advantages over competing treatments;
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the prevalence and severity of the disease targeted;
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the clinical indications for which approval is granted, including any limitations or warnings contained in a products approved labeling;
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the convenience and ease of administration;
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the willingness of the patients and physicians to accept products engineered from bacteria and these therapies;
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the perceived ratio of risk and benefit of these therapies by physicians, patients, and payers, and the willingness of physicians to recommend these therapies to patients based on such risks and benefits;
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the marketing, sales and distribution support for the product;
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the publicity concerning the products or competing products and treatments; and
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the pricing and availability of third-party insurance coverage and reimbursement.
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Even if a
product displays a favorable efficacy and safety profile upon approval, market acceptance of the product remains uncertain. Efforts to educate the medical community and third-party payors on the benefits of the products may require significant
investment and resources and may never be successful. If our products fail to achieve an adequate level of acceptance by physicians, patients, third-party payors, and other health care providers, we will not be able to generate sufficient revenue to
become or remain profitable.
We may not be successful in any efforts to identify, license, discover, develop, or commercialize additional product
candidates.
Although a substantial amount of our effort will focus on the clinical testing, potential approval, and
commercialization of our existing product candidates, the success of our business is also expected to depend in part upon our ability to identify, license, discover, develop, or commercialize additional product candidates. Research programs to
identify new product candidates require substantial technical, financial, and human resources. We may focus our efforts and resources on potential programs or product candidates that ultimately prove to be unsuccessful. Our research programs or
licensing efforts may fail to yield additional product candidates for clinical development and commercialization for a number of reasons, including but not limited to the following:
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our research or business development methodology or search criteria and process may be unsuccessful in identifying potential product candidates;
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we may not be able or willing to assemble sufficient resources to acquire or discover additional product candidates;
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our product candidates may not succeed in preclinical or clinical testing;
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our potential product candidates may be shown to have harmful side effects or may have other characteristics that may make the products unmarketable or unlikely to receive marketing approval;
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competitors may develop alternatives that render our product candidates obsolete or less attractive;
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product candidates we develop may be covered by third parties patents or other exclusive rights;
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the market for a product candidate may change during development or commercialization so that such a product may become unreasonable to continue to develop or commercialize;
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a product candidate may not be capable of being produced in commercial quantities at an acceptable cost, or at all; and
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a product candidate may not be accepted as safe and effective by patients, the medical community, or third-party payors.
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If any of these events occur, we may be forced to abandon our development efforts for one or more product candidates, or we may not be able to
identify, license, discover, develop, or commercialize additional product candidates, which would have a material adverse effect on our business, financial condition or results of operations and could potentially cause us to cease operations.
Failure to obtain or maintain adequate reimbursement or insurance coverage for products, if any, could limit our ability to market those products and
decrease our ability to generate revenue.
The pricing, coverage, and reimbursement of our approved products, if any, must be
sufficient to support our commercial efforts and other development programs and the availability and adequacy of coverage and reimbursement by third-party payors, including governmental and private insurers, are essential for most patients to be
able to afford expensive treatments. Sales of our approved products, if any, will depend substantially, both domestically and abroad, on the extent to which the costs of our approved products, if any, will be paid for or reimbursed by health
maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or government payors and private payors. If coverage and reimbursement are not available, or are available only in limited amounts, we may have to subsidize
or provide products for free or we may not be able to successfully commercialize our products.
In addition, there is significant
uncertainty related to the insurance coverage and reimbursement for newly approved products. In the United States, the principal decisions about coverage and reimbursement for new drugs are typically made by the Centers for Medicare &
Medicaid Services (CMS), an agency within the U.S. Department of Health and Human Services, as CMS decides whether and to what extent a new drug will be covered and reimbursed under Medicare. Private payors tend to follow the coverage
reimbursement policies established by CMS to a substantial degree. It is difficult to predict what CMS will decide with respect to reimbursement for novel product candidates such as ours and what reimbursement codes our product candidates may
receive if approved.
Outside the United States, international operations are generally subject to extensive governmental price controls
and other price-restrictive regulations, and we believe the increasing emphasis on cost-containment initiatives in Europe, Canada, and other countries has and will continue to put pressure on the pricing and usage of products. In many countries, the
prices of products are subject to varying price control mechanisms as part of national health systems. Price controls or other changes in pricing regulation could restrict the amount that we are able to charge for our products, if any. Accordingly,
in markets outside the United States, the potential revenue from the sale of our products may be insufficient to generate commercially reasonable revenue and profits.
Moreover, increasing efforts by governmental and private payors in the United States and abroad to limit or reduce healthcare costs may result
in restrictions on coverage and the level of reimbursement for new products and, as a result, they may not cover or provide adequate payment for our products. We expect to experience pricing pressures in connection with products due to the
increasing trend toward managed healthcare, including the increasing influence of health maintenance organizations and additional legislative changes. The downward pressure on healthcare costs in general, particularly prescription drugs has and is
expected to continue to increase in the future. As a result, profitability of our products, if any, may be more difficult to achieve even if they receive regulatory approval.
Risks Related to Our Business Operations and Employees
Our failure to attract and retain senior management and key scientific personnel may prevent us from successfully developing our product candidates or
any future product candidate, conducting our clinical trials and commercializing any products.
Our success depends in part on our
continued ability to attract, retain and motivate highly qualified management, clinical and scientific personnel. We believe that our future success is highly dependent upon the contributions of our senior management, particularly our president and
chief executive officer, chief financial officer, chief medical officer, as well as our senior scientists and other members of our senior management team. The loss of services of any of these individuals could delay or prevent the successful
development of our product pipeline, completion of our planned clinical trials or the commercialization of the products we develop.
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Although we have not historically experienced significant difficulties attracting and retaining
qualified employees, we could experience such problems in the future. For example, competition for qualified personnel in the biotechnology and pharmaceuticals field is intense due to the limited number of individuals who possess the skills and
experience required by our industry. We will need to hire additional personnel as we expand our clinical development and commercial activities. We may not be able to attract and retain quality personnel on acceptable terms, or at all.
Our employees, independent contractors, principal investigators, CROs, consultants and collaborators may engage in misconduct or other improper
activities, including noncompliance with regulatory standards and requirements and insider trading.
We are exposed to the risk
that our employees, independent contractors, consultants and collaborators may engage in fraudulent conduct or other illegal activity. Misconduct by these parties could include intentional, reckless and/or negligent conduct or unauthorized
activities that violate: (1) regulations of regulatory authorities in jurisdictions where we are performing activities in relation to our product candidates, including those laws requiring the reporting of true, complete and accurate
information to such authorities; (2) manufacturing regulations and standards; (3) fraud and abuse and anti-corruption laws and regulations; or (4) laws that require the reporting of true and accurate financial information and data. In
particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, bias, misconduct, kickbacks, self-dealing and other abusive practices, and these laws may
differ substantially from country to country. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. These
activities also include the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. It is not always possible to identify and deter misconduct by employees
and other third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting ourselves from governmental investigations or other actions or
lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending itself or asserting our rights, those actions could have a significant impact
on our business including the imposition of significant civil, criminal and administrative penalties, damages, monetary fines, possible exclusion from participation in subsidized healthcare programs in a given country, contractual damages,
reputational harm, diminished profits and future earnings, and curtailment of our operations, any of which could adversely affect our ability to operate our business and our results of operations.
Risks Related to the Our Common Stock
Our common
stock may be delisted from the NASDAQ Capital Market if we are unable to maintain compliance with NASDAQs continued listing standards.
NASDAQ imposes, among other requirements, continued listing standards including minimum bid and public float requirements. The price of our
common stock must trade at or above $1.00 to comply with NASDAQs minimum bid requirement for continued listing on the NASDAQ Capital Market. If our stock trades at bid prices of less than $1.00 for a period in excess of 30 consecutive business
days, NASDAQ could send a deficiency notice to the company for not remaining in compliance with the minimum bid listing standards. During the third quarter of fiscal year 2017, our common stock never traded below $1.00. However, if the closing bid
price of our common stock fails to meet NASDAQs minimum closing bid price requirement, or if we otherwise fail to meet any other applicable requirements of NASDAQ and we are unable to regain compliance, NASDAQ may make a determination to
delist our common stock.
Any delisting of our common stock could adversely affect the market liquidity of our common stock and the market
price of our common stock could decrease. Furthermore, if our common stock were delisted it could adversely affect our ability to obtain financing for the continuation of our operations and/or result in the loss of confidence by investors,
customers, suppliers and employees.
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Our principal stockholders and management own a significant percentage of our stock and are able to exert
significant control over matters subject to stockholder approval.
Based on the beneficial ownership of our common stock as of
September 30, 2017, our executive officers and directors, together with holders of 5% or more of our common stock outstanding and their respective affiliates, beneficially own approximately 57% of our common stock. Accordingly, these
stockholders have significant influence over the outcome of corporate actions requiring stockholder approval, including the election of directors, consolidation or sale of all or substantially all of our assets or any other significant corporate
transaction. The interests of these stockholders may not be the same as or may even conflict with your interests. For example, these stockholders could delay or prevent a change of control, even if such a change of control would benefit our other
stockholders, which could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of the company or our assets and might affect the prevailing market price of our common stock. The significant
concentration of stock ownership may adversely affect the trading price of our common stock due to investors perception that conflicts of interest may exist or arise.
We are an emerging growth company and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies
will make our common stock less attractive to investors.
We are an emerging growth company, as defined in the JOBS
Act, and may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including not being required to comply with the auditor
attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding
advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some
investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
In addition, Section 102 of the JOBS Act also provides that an emerging growth company can take advantage of the extended
transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. An emerging growth company can therefore delay the adoption of certain accounting standards until those
standards would otherwise apply to private companies. However, we are choosing to opt out of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which
adoption of such standards is required for
non-emerging
growth companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or
revised accounting standards is irrevocable.
Future sales of our common stock or securities convertible or exchangeable for our common stock may
depress our stock price.
If our existing stockholders or holders of our options sell, or indicate an intention to sell,
substantial amounts of our common stock in the public market, the trading price of our common stock could decline. The perception in the market that these sales may occur could also cause the trading price of our common stock to decline. As of
September 30, 2017, there were a total of 16,284,921 shares of our common stock outstanding.
Our quarterly operating results may fluctuate
significantly or may fall below the expectations of investors or securities analysts, each of which may cause our stock price to fluctuate or decline.
We expect our operating results to be subject to quarterly fluctuations. Our net loss and other operating results will be affected by numerous
factors, including:
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variations in the level of our operating expenses;
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receipt, modification or termination of government contracts or grants, and the timing of payments we receive under these arrangements;
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Our execution of any collaborative, licensing or similar arrangements, and the timing of payments we may make under these arrangements; and
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any intellectual property infringement lawsuit or opposition, interference or cancellation proceeding in which we may become involved.
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If our quarterly operating results fall below the expectations of investors or securities
analysts, the price of our common stock could decline substantially. Furthermore, any quarterly fluctuations in our operating results may, in turn, cause the price of the companys stock to fluctuate substantially. We believe that quarterly
comparisons of our financial results are not necessarily meaningful and should not be relied upon as an indication of our future performance.
Provisions of our charter documents or Delaware law could delay or prevent an acquisition of us, even if the acquisition would be beneficial to our
stockholders, and could make it more difficult for you to change management.
Provisions in our amended and restated certificate
of incorporation and our amended and restated bylaws may discourage, delay or prevent a merger, acquisition or other change in control that our stockholders may consider favorable, including transactions in which our stockholders might otherwise
receive a premium for their shares. In addition, these provisions may frustrate or prevent any attempt by our stockholders to replace or remove our current management by making it more difficult to replace or remove our Board of Directors. These
provisions include:
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a classified board of directors so that not all directors are elected at one time;
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a prohibition on stockholder action through written consent;
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no cumulative voting in the election of directors;
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the exclusive right of our Board of Directors to elect a director to fill a vacancy created by the expansion of our Board of Directors or the resignation, death or removal of a director;
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a requirement that special meetings of our Stockholders be called only by our Board of Directors, the chairman of our Board of Directors, the chief executive officer or, in the absence of a chief executive officer, the
president;
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an advance notice requirement for stockholder proposals and nominations;
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the authority of our Board of Directors to issue preferred stock with such terms as our Board of Directors may determine; and
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a requirement of approval of not less than 66 2/3% of all outstanding shares of our capital stock entitled to vote to amend any bylaws by stockholder action, or to amend specific provisions of our certificate of
incorporation.
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In addition, Delaware law prohibits a publicly held Delaware corporation from engaging in a business
combination with an interested stockholder, generally a person who, together with its affiliates, owns or within the last three years has owned 15% or more of the companys voting stock, for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. Accordingly, Delaware law may discourage, delay or prevent a change in control of the company. Furthermore, our
amended and restated certificate of incorporation specifies that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for most legal actions involving actions brought against us by our stockholders. We believe this
provision benefits the company by providing increased consistency in the application of Delaware law by chancellors particularly experienced in resolving corporate disputes, efficient administration of cases on a more expedited schedule relative to
other forums and protection against the burdens of multi-forum litigation. However, the provision may have the effect of discouraging lawsuits against our directors and officers. The enforceability of similar choice of forum provisions in other
companies certificates of incorporation has been challenged in legal proceedings, and it is possible that, in connection with any applicable action brought against us, a court could find the choice of forum provisions contained in our amended
and restated certificate of incorporation to be inapplicable or unenforceable in such action.
Provisions in our charter and other
provisions of Delaware law could limit the price that investors are willing to pay in the future for shares of our common stock.
Our employment
agreements with our executive officers may require us to pay severance benefits to any of those persons who are terminated in connection with a change of control, which could harm our business, financial condition or results of operations.
Our current executive officers are parties to employment agreements providing for aggregate cash payments of up to approximately
$1.3 million at September 30, 2017 for severance and other benefits in the event of a termination of employment in connection with a change of control. The payment of these severance benefits could harm our business, financial condition
and results of operations. In addition, these potential severance payments may discourage or prevent third parties from seeking a business combination with Synlogic.
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We do not anticipate paying any cash dividends on our common stock in the foreseeable future; therefore,
capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future.
We have never
declared or paid cash dividends on our common stock. We do not anticipate paying any cash dividends on our common stock in the foreseeable future. We currently intend to retain all available funds and any future earnings to fund our operations. In
addition, the terms of any future debt financing arrangement may contain terms prohibiting or limiting the amount of dividends that may be declared or paid on our common stock. As a result, capital appreciation, if any, of our common stock will be
your sole source of gain for the foreseeable future.
If securities or industry analysts do not publish research, or publish inaccurate or
unfavorable research, about our business, our stock price and trading volume could decline.
The trading market for our common
stock will depend, in part, on the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who cover us downgrade our common stock or publish inaccurate or unfavorable research about
our business, our stock price would likely decline. In addition, if our operating results fail to meet the forecast of analysts, our stock price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports
on us regularly, demand for our common stock could decrease, which might cause our stock price and trading volume to decline.
Changes in, or
interpretations of, accounting rules and regulations could result in unfavorable accounting charges or require us to change our compensation policies.
Accounting methods and policies for biopharmaceutical companies, including policies governing revenue recognition, research and development and related
expenses and accounting for stock-based compensation, are subject to further review, interpretation and guidance from relevant accounting authorities, including the SEC. Changes to, or interpretations of, accounting methods or policies may require
us to reclassify, restate or otherwise change or revise our financial statements, including those contained in this periodic report.